Regulation of mobile money in emerging markets

[Paul Makin] There have been many articles written in recent months about the regulation of mobile money in emerging markets, and to those of us who work in this field every day of our lives much of the talk sounds remarkably misinformed. For example, the suggestion is that mobile money has not taken off in some markets because of the failure of the key players to “define, articulate and communicate the benefits of using the service to prospective customers”.

On this analysis, it seems that we in the industry have simply failed to develop services that meet customers’ needs. I beg to differ. There are shortcomings, yes, but I strongly argue that the effect we’re seeing is the result, in most cases, of misguided regulation.

There is one country that illustrates this well. For the most well-intentioned of reasons, Nigeria has ended up with mobile money regulation that is spectacularly far from what the market needs. Consider the following points.

First, the question of sustainability.  More than almost any other business, mobile money depends on scale – so licensing 19 operators in Nigeria (9 yet to launch), all of whom have to start from scratch, almost guarantees that all will struggle for a long time to build a self-sustaining business. Surely what we all want is a healthy mobile money sector, and if that means limiting licences to three or four, at least in the early years, would that not be a price worth paying?

Second, no mobile operators have been licensed, though they may operate a platform as suppliers to a licensee. This is reportedly because the Nigerian Regulator has seen the success of M-PESA in Kenya, and does not like what he sees. I have heard similar comments from regulators a number of times in the past, and I really struggle to see precisely what harm M-PESA has done to Kenya.

Third, the hot topic of interoperability. Almost all regulators love this one (and the Nigerian Regulator is no exception), as it sounds so good; make sure that everyone can send money to everyone, regardless of operator, and try to enforce efficiency by making all the operators share agents. But this is simply nonsense. The “send to everyone” requirement is most efficiently met by allowing all schemes to implement a “send to unregistered customer” capability (which, by the way, is not a money laundering risk if it is implemented properly, as a message to the recipient to tell them there is money waiting for them, and all they need to do in order to withdraw it is to register – the promise of money is always a good incentive). Further, it is common for people in sub-Saharan Africa to carry multiple SIMs, so the idea of being registered for multiple mobile money schemes will hardly be a shock to them.

The other aspect of interoperability that regulators seek to enforce is agent sharing. Let’s pick that apart for a moment. I, as a mobile money operator, must invest money in equipping an agent, in ensuring that their premises are suitable, that they have sufficient cash on hand, and (most importantly) in training them and their staff, together with regular refreshers as they turnover staff. Once I’ve spent all that money, all of my competitors can then come along and use that agent without making any investment, because interoperability requires it. Please tell me then, why is anyone surprised that there has been insufficient investment in agent networks?

There is one aspect of interoperability that neither the regulators nor the mobile money industry have so far addressed in any meaningful manner, and that is in ensuring mobile money acceptance in shops and at small merchants. As a mobile money customer, the utility of any scheme is vastly increased as the number of places I can spend my money increases – would anyone in Western Europe be impressed with a scheme that could be loaded at a local shop, but all you could then do with the money is to send it to a relative, or pay a bill?

Shop/merchant acceptance is the next frontier of mobile money. I just hope the regulators don’t enforce solutions based on the old technology of switches and acquiring networks – but that’s a subject for another post.